chf fundamentals

Euro, Swiss Franc Down as S&P Issues Second Downgrade on Ireland's Credit Rating

Monday, 08 June 2009 22:16:27 GMT  |  Terri Belkas, Currency Strategist

The euro came under pressure across the majors following an announcement by Standard & Poor’s, as the ratings agency lowered Ireland’s long-term sovereign credit rating again to AA from AA+, and revised their outlook to "negative," noting that "[f]iscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009.” However, the currency showed little response to news from Germany when the Economy Ministry said that factory orders stagnated during the month of April after rising 3.7 percent in March, while the annual rate of growth plunged to -37.1 percent, nearing the record low of -38.0 percent reached in February. Overall, the results highlight the impact of lackluster domestic and foreign demand on German producers.

The Swiss franc was even weaker than the euro, as the currency fell against every major but the New Zealand dollar. The State Secretariat for Economic Affairs said that the Swiss unemployment rate (seasonally adjusted) rose to a more than three year high of 3.5 percent during May, up from 3.4 percent. According to Q1 GDP figures, household consumption actually increased by 0.1 percent during the quarter, after falling 0.1 percent in Q4, but a continued deterioration of the labor market suggests that spending could slump again in Q2.

On Tuesday, the German trade surplus is projected to narrow to 9.3 billion euros for the month of April from 11.3 billion euros, due primarily to a drop in exports. Indeed, like the factory output results we saw today, the news is likely to highlight the impact of the Euro-zone's broad recession on the trade-dependent nation. A reading that is worse than expectations could weigh on the euro, especially if the export component drops very sharply. On the other hand, if the surplus holds fairly steady or increases, the currency could rally in response.

Related Article: Euro Weekly Trading Forecast

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